French voters get a wake-up call via harsh message on national finances

French voters get a wake-up call via harsh message on national finances

If French voters thought they were winning themselves a reprieve from tough medicine by defeating Nicolas Sarkozy and replacing him with the socialist Francois Hollande, they got a rude awakening on Monday.

Didier Migaud, head of the Cour des Compes, warned that the national economy is bordering on disaster and will “require both an unprecedented curb on public expenditure and an increase in taxes.”

“The country is in the danger zone in terms of its economy and public finances. We cannot rule out the possibility of a debt spiral,” said Migaud, equivalent to the national auditor. “2013 is a crucial year. The budgetary equation is going to be very hard: much harder than expected due to the worsening of the economic picture.”

At a press conference laden with gloom, Mr. Migaud noted the budget situation left behind by Mr. Sarkozy was worse than the new government had expected. It’s an old trick of new governments to throw up their hands in shock once they take office and get a look at the books. Right on cue, Prime Minister Jean-Marc Ayrault issued a statement making clear that it would be Mr. Sarkozy’s fault if the new administration is forced to abandon the promises it made on the campaign trail.

“The state of the public finances left by the last government makes determined correctional action necessary,” he said.

President Francois Hollande ordered up the auditor’s report after defeating Mr. Sarkozy in May. France aims to reduce its budget deficit to 3% of gross domestic product next year and eliminate the deficit by 2017. To meet that target, Mr. Migaud estimated savings of 33 billion euros would be necessary and suggested public debt could reach 90% of GDP this year. According to Britain’s Financial Times, he “pulled few punches on the country’s ‘far from exemplary record’ on its public finances, noting that it lagged far behind Germany – and that Italy and Spain had made twice the effort on their deficits.”

The report canvassed a number of scenarios for cutting spending, saying that if the €33bn in savings was split evenly between cuts and taxes, the required figure could be reached by freezing state spending in real terms.

It pointed out that state salaries accounted for 13.6 per cent of GDP, saying meeting deficit targets implied the need to stabilise this figure in nominal terms. It said there was a strong need for efficiencies in the disbursement of a range of social spending and other transfer programmes which accounted for €620bn out of total public expenditure of €1.1tn.

“In health, education, vocational training, for example, France spends much more than other countries where the outcome in these areas is considerably better than ours,” Mr Migaud said.